In Chip Deal, Singapore’s Avago to Acquire LSI for $6.6 Billion

Avago Technologies, a Singapore-based company that makes chips that go into a variety of wireless and wired communications equipment, said today that it will acquire LSI Corp., a San Jose, Calif., chipmaker, in a deal worth $6.6 billion.

LSI is a 33-year-old chip company founded by three former executives of the old Fairchild Semiconductor. It makes chips that go into enterprise storage gear, hard drives and flash storage devices.

Avago is paying cash for the deal, including $1 billion from its own balance sheet. Another $4.6 billion is coming from bank loans, while the remaining $1 billion is coming in the form of an investment from the private equity firm Silver Lake. The investment is expected be in the form of a seven-year, two percent note that carries a conversion price of $48.04.

LSI shareholders will get $11.15 per share out of the deal, amounting to a premium of more than 40 percent from Friday’s closing price of $7.94. Shares of Avago rose by more than 16 percent, to $52.75, in pre-market trading, after news of the deal was published.

As historians of all things Hewlett-Packard will remember, Avago is the former HP semiconductor division and was part of the business spun out as Agilent Technologies in 1999. Agilent and Avago split up in 2005 in a $2.7 billion deal with Silver Lake and another private equity firm, Kohlberg Kravis Roberts. At the time, it employed about 6,800 people and was responsible for about a quarter of Agilent’s revenue, but was considered a drain on its profits.

It went public in 2009 and was one of the most successful IPOs after the financial crisis. As of Friday, it had a market capitalization of about $11 billion.

LSI, which was formerly known as LSI Logic, is the adopted home of another historically important chip company, Agere Systems, the former chip division of Lucent Technologies (now Alcatel-Lucent) and so has its roots in the old AT&T and Bell Labs. Agere was spun off from Lucent in 2002 in an IPO. In 2006, LSI acquired it in a deal worth about $4 billion.

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